Inventory Management

Self-Study Assignment #C

Inventory Management

Due: 12/23/11

1. George uses 1,500 per year of a certain subassembly that has an annual holding cost of $45 per unit. Each order placed costs George $150. He operates 300 days per year and has found that an order must be placed with his supplier 6 working days before he can expect to receive that order. For this subassembly, find

a)  Economic order quantity (EOQ)

b)  Annual holding cost

c)  Annual ordering cost

d)  Reorder point (R)

2. Stephanie is attempting to perform an inventory analysis on one of her most popular products. Annual demand for this product is 5,000 units; carrying cost is $50 per unit per year; order costs for her company typically run nearly $30 per order; and lead time average 10 days. (Assume 250 working days per year.)

a)  What is EOQ?

b)  What is the average inventory?

c)  What is the optimal number of orders per year?

d)  What is the optimal number of working days between orders?

e)  What is the total annual inventory cost (carrying cost + ordering cost)?

f)  What is the reorder point (R)?

3. Based on available information, lead time demand for CD-ROM drives averages 50 units (normally distributed), with a standard deviation of 5 drives. Management wants a 97% service level.

a)  What value of Z should be applied?

b)  How many drives should be carried as safety stock?

c)  What is the appropriate reorder point (R)?

4. An ophthalmologist’s office operates 52 weeks per year, 6 days per week and uses a continuous review inventory system. It purchases disposable contact lenses for $11.70 per pair. The following information is available about these lenses.

Demand = 90 pairs/week

Order cost = $54/order

Annual holding cost = 27% of cost

Desired cycle-service level = 80%

Lead time = 3 weeks (18 working days)

Standard deviation of weekly demand = 15 pairs

Current on-hand inventory is 320 pairs, with no open orders or backorders.

a)  What is EOQ? What should be the average tune between orders (in weeks)?

b)  What should R be?

c)  An inventory withdrawal of 10 pairs was just made. Is it time to reorder?

d)  The store currently uses a lot size of 500 units (i.e., Q = 500). What is the annual holding cost of this policy? Annual ordering cost? Without calculating the EOQ, how can you conclude from these two calculations that the current lot size is too large?

e)  What would be the annual cost saved by shifting from the 500-unit lot size to the EOQ?

5. Suppose that the ophthalmologist’s office in Problem 4 uses a P system instead of a Q system. The average daily demand is 15 pairs (90/6), and the standard deviation of daily demand is 6.124 pairs (15/).

a)  What P (in working days) and T should be used to approximate the cost trade-off of the EOQ?

b)  How much more safety stock is needed than with a Q system?

c)  It’s time for the periodic review. How much should be ordered? (current on-hand inventory is 320 pairs, and a withdrawal of 10 pairs was just made)